Business

S elections vulnerable on debt-equity question

Article Abstract:

S corporations that fail to conduct adequate debt planning runs the risk of getting into serious problems. While changing the capital structure of a corporation may lead to higher taxes for the organization and its taxholders, poor capital planning for an S corporation may lead to worse consequences. For instance, an S corporation may become unable to substract flow-through losses and become disqualified as an S corporation if planning is not sufficient. In view of these serious difficulties, accountants should amply warn their S corporation clients that incurring corporate debt is not advisable. If corporate debt is already present before an S election is made, accounting consultants should review the terms of all debt instruments, keeping in mind that they should come within the safe harbor.

Valuation discounts for intrafamily transfers

Article Abstract:

The author discusses the tax planning technique of using family limited partnerships for reducing gift taxes by obtaining valuation discounts. Likely IRS treatment of this planning technique is explored.